The Strait of Hormuz, a narrow waterway in the Persian Gulf. It’s an important transit hub for international oil and gas exports. At its widest stretch, it’s less than 50km wide, and at the narrowest, it is just 33 kilometers wide. This narrow strait perpetually ignites storms in the geopolitics of energy security. This crucial international maritime passage lies between Iran to the north and the United Arab Emirates and Oman to the south. As a result, it has become a central flashpoint for competing regional and global interests.
Handling approximately 20% of the world’s liquefied natural gas (LNG) trade, mainly from Qatar, the Strait concentrates energy exports from key Persian Gulf countries, including Saudi Arabia, Iraq, Kuwait, and Iran. A sustained disruption in this narrow corridor would have deep ramifications for global energy markets and many other commodities.
Iran regularly threatens to close the strait in times of crisis with the United States. Historic years for these threats are 2011, 2018, and 2020. None of these threats has resulted in a full shutdown yet, but even the discussion of such a move has led to the crude oil market swinging. The economic imperative is equally significant. Even a total closure would push crude oil prices well above $120 to $150 a barrel—affecting American households and industries, and indeed those throughout the world.
The Economic Stakes of Closure
As with the other scenarios, blocking the Strait of Hormuz would immediately affect global energy supplies. It would end access to the region’s oil and gas exports. Needless to say, such an action would send shockwaves through the global economy. Not only would it immediately increase energy inflation, it would introduce massive economic pain across the board.
Analysts have noted that a closure would especially hurt China, India and South Korea, three of the world’s largest economies.
“The closure of the Strait would be a major blow, particularly for China, India and South Korea” – ING
Energy experts point out that the world’s energy economy is increasingly dependent on this critical chokepoint. The U.S. Energy Information Administration has labeled it “the world’s most important Oil chokepoint,” underscoring its integral role in global commerce.
Furthermore, the International Energy Agency has noted that “the majority of the world’s spare production capacity is located in the Gulf.” This situation should set off major warning bells. It would set off cascading effects across all sectors, hitting everything from home energy expenses to manufacturing costs.
Geopolitical Tensions and Military Presence
The geopolitical landscape around the Strait of Hormuz is a minefield of contradictions and toxicity. Iran’s increasing dependency on this key passageway for its oil exports—mainly to China—creates a paradox.
“There is no net benefit for Iran in closing the Strait. It would hurt its own exports to China, its biggest customer” – CNBC
Additionally, analysts agree that Tehran is indeed threatened, but that provoking an armed confrontation is not in Iran’s national interest. Closing enter the strait would be an extreme step that would incur devastating consequences. Anas Alhajji, managing partner at Energy Outlook Advisors, stated:
“It’s not in their interest to cause problems because they will suffer first.”
With powerful U.S. military forces including the 5th Fleet, based in Bahrain, operating in the region, the stakes are high. This presence is a powerful deterrent against the onset of hostilities. Experts caution that military interests dangerously overlap in this region. They point out that if there is a confrontation, it would have disastrous and unintended consequences on all parties.
“This would be a situation where energy and military interests overlap dangerously” – Expert quoted by EuroNews
Methods of Disruption
The possibility of a total closure of the Strait of Hormuz remains low. Strategic disruptions in that particular space are certainly more doable and might even be possible. Industrial executives and analysts have serious concerns about Iran’s capacity and intent to use a range of threats to deny or disrupt shipping traffic through the strait.
“Targeted attacks on tankers, mine-laying, or disruption by drones or missiles are methods well within the Iranian operational spectrum” – RBC Capital Markets
These kinds of tactics could produce major diversions and damages, yet they wouldn’t require the drastic step of a complete blockade. This strategy hands Iran the keys to project its power. Simultaneously, it allows them to skirt around the bad optics of fully closing down a vital trade route.
Rabobank has pointed out that “Gulf Oil is geographically concentrated and trapped in a single access point,” emphasizing how vulnerable this critical infrastructure is to geopolitical tensions.